MidAmerican Energy Holdings Company and PacifiCorp
Annual Report of Status of Commitments
To the Utah Public Service Commission
For the Period April 1, 2008 through March 31, 2009
GENERAL COMMITMENTS
GeneralCommitment Number / Commitment Description / Status / Status Description /
1 / MEHC and PacifiCorp affirm the continuation (through March 31, 2008) of the existing customer service guarantees and performance standards in each jurisdiction. MEHC and PacifiCorp will not propose modifications to the guarantees and standards prior to March 31, 2008. Refer to Commitment 45 for the extension of this commitment through 2011. / COMPLETE / COMPLETE – effective March 31, 2008.
2 / Penalties for noncompliance with performance standards and customer guarantees shall be paid as designated by the Commission and shall be excluded from results of operations. PacifiCorp will abide by the Commission’s decision regarding payments. / Ongoing Compliance / Customer guarantee failure payments are made directly to customers as agreed by commission and are excluded from results of operations.
3 / PacifiCorp will maintain its own accounting system, separate from MEHC’s accounting system. All PacifiCorp financial books and records will be kept in Portland, Oregon. PacifiCorp’s financial books and records and state and federal utility regulatory filings and documents will continue to be available to the Commission, upon request, at PacifiCorp’s offices in Portland, Oregon, Salt Lake City, Utah, and elsewhere in accordance with current practice. / Ongoing Compliance / No additional steps required at the PacifiCorp level. The Company maintains its own SAP accounting system, which is separate from MEHC's systems.
4 / MEHC and PacifiCorp will provide the Commission access to all books of account, as well as all documents, data, and records of their affiliated interests, which pertain to transactions between PacifiCorp and its affiliated interests or which are otherwise relevant to the business of PacifiCorp. This commitment is also applicable to the books and records of Berkshire Hathaway, which shall retain its books and records relevant to the business of PacifiCorp consistent with the manner and time periods of the Federal Energy Regulatory Commission’s record retention requirements that are applicable to PacifiCorp’s books and records. / Ongoing Compliance / No additional steps required at the PacifiCorp level. The Company complies with the FERC's record retention requirement.
5 / MEHC, PacifiCorp and all affiliates will make their employees, officers, directors, and agents available to testify before the Commission to provide information relevant to matters within the jurisdiction of the Commission. / Ongoing Compliance / Agreed per signed stipulation.
6 / The Commission or its agents may audit the accounting records of MEHC and its subsidiaries that are the bases for charges to PacifiCorp, to determine the reasonableness of the costs and allocation factors used by MEHC to assign costs to PacifiCorp and amounts subject to allocation or direct charges. MEHC agrees to cooperate fully with such Commission audits. / Ongoing Compliance / The general ledger of MEHC and the ledger of each subsidiary reflect and track all intercompany activity (both direct charges and allocations) and are supported with detail transactions (journal entry, positive time reporting, vouchers, etc.) MEHC and subsidiaries maintain support files for allocation factors supporting inter-company billings. MEHC and subsidiaries’ general ledgers reflect all inter-company transactions as required by the IASA.
7 / MEHC and PacifiCorp will comply with all applicable Commission statutes and regulations regarding affiliated interest transactions, including timely filing of applications and reports. / Ongoing Compliance / Agreed per signed stipulation. See also General Commitments 8 and 13 and Utah-specific Commitment U3.
8 / PacifiCorp will file on an annual basis an affiliated interest report including an organization chart, narrative description of each affiliate, revenue for each affiliate and transactions with each affiliate. / Ongoing Compliance / The Affiliated Interest Report for 2007 was filed May 30, 2008. The 2008 report will be filed in May 2009.
9 / PacifiCorp and MEHC will not cross-subsidize between the regulated and non-regulated businesses or between any regulated businesses, and shall comply with the Commission’s applicable orders and rules with respect to such matters. / Ongoing Compliance / IASA acknowledging this commitment was executed on March 30, 2006; filed on March 31, 2006; approved on October 6, 2006.
10 / Due to PUHCA repeal, neither Berkshire Hathaway nor MEHC will be registered public utility holding companies under PUHCA. Thus, no waiver by Berkshire Hathaway or MEHC of any defenses to which they may be entitled under Ohio Power Co. v. FERC, 954 F.2d 779 (D.C. Cir.), cert. denied sub nom. Arcadia v. Ohio Power Co., 506 U.S. 981 (1992) (“Ohio Power”), is necessary to maintain the Commission’s regulation of MEHC and PacifiCorp. However, while PUHCA is in effect, Berkshire Hathaway and MEHC waive such defenses. / Ongoing Compliance / Agreed per signed stipulation.
11 / a) Any diversified holdings and investments (e.g., non-utility business or foreign utilities) of MEHC following approval of the transaction will not be held by PacifiCorp or a subsidiary of PacifiCorp. Ring-fencing provisions (i.e., measures providing for separate financial and accounting treatment) will be provided for PacifiCorp and its subsidiaries including, but not limited to, provisions protecting PacifiCorp and its subsidiaries from the liabilities or financial distress of MEHC and its affiliates. This condition will not prohibit MEHC or its affiliates other than PacifiCorp from holding diversified businesses.
b) [Intentionally left blank.]
c) PacifiCorp will notify the Commission of any changes in the ring-fencing provisions within 30 days. Such notice shall include verification that (i) the change has been approved by the independent director of PacifiCorp’s parent company, and (ii) the rating agencies have confirmed that there will be no credit downgrade from the changed ring-fencing protections. / Ongoing Compliance / a) Agreed per signed stipulation; action not required unless specified activities occur.
c) The PPW Holdings LLC agreement with provisions consistent with Appendix 1 was executed March 15, 2006.
12 / PacifiCorp or MEHC will notify the Commission in writing subsequent to MEHC’s board approval and as soon as practicable following any public announcement of: (1) any acquisition of a regulated or unregulated business representing 5 percent or more of the capitalization of MEHC; or (2) the change in effective control or acquisition of any material part or all of PacifiCorp by any other firm, whether by merger, combination, transfer of stock or assets. / Ongoing Compliance / Agreed per signed stipulation; action not required unless specified activities occur.
Written notice of the Constellation acquisition was provided to all PacifiCorp utility commissions in September 2008. Verbal notice of the cancellation of the Constellation acquisition was given to all PacifiCorp utility commissions in December 2008.
13 / The Intercompany Administrative Services Agreement (IASA) will include the corporate and affiliate cost allocation methodologies. The IASA will be filed with the Commission as soon as practicable after the closing of the transaction. Approval of the IASA will be requested if required by law or rule, but approval for ratemaking purposes will not be requested in such filing. Refer to Commitment 14 (f). Amendments to the IASA will also be filed with the Commission. / Ongoing Compliance / IASA acknowledging this commitment was executed on March 30, 2006; filed on March 31, 2006; approved on October 6, 2006.
14 / Any proposed cost allocation methodology for the allocation of corporate and affiliate investments, expenses, and overheads, required by law or rule to be submitted to the Commission for approval, will comply with the following principles:
a) For services rendered to PacifiCorp or each cost category subject to allocation to PacifiCorp by MEHC or any of its affiliates, MEHC must be able to demonstrate that such service or cost category is necessary to PacifiCorp for the performance of its regulated operations, is not duplicative of services already being performed within PacifiCorp, and is reasonable and prudent.
b) Cost allocations to PacifiCorp and its subsidiaries will be based on generally accepted accounting standards; that is, in general, direct costs will be charged to specific subsidiaries whenever possible and shared or indirect costs will be allocated based upon the primary cost-driving factors.
c) MEHC and its subsidiaries will have in place positive time reporting systems adequate to support the allocation and assignment of costs of executives and other relevant personnel to PacifiCorp.
d) An audit trail will be maintained such that all costs subject to allocation can be specifically identified, particularly with respect to their origin. In addition, the audit trail must be adequately supported. Failure to adequately support any allocated cost may result in denial of its recovery in rates.
e) Costs which would have been denied recovery in rates had they been incurred by PacifiCorp regulated operations will likewise be denied recovery whether they are allocated directly or indirectly through subsidiaries in the MEHC group.
f) Any corporate cost allocation methodology used for rate setting, and subsequent changes thereto, will be submitted to the Commission for approval if required by law or rule. / Ongoing Compliance / IASA filed in 13 above contained the provisions required by 14a-14f.
15 / MEHC and PacifiCorp commit that PacifiCorp will maintain separate debt and preferred stock, if any. PacifiCorp will maintain its own corporate credit rating, as well as ratings for long-term debt and preferred stock, from Moody’s and S&P or their successor agencies. / Ongoing Compliance / PacifiCorp continues to have corporate credit ratings as well as ratings for long-term debt and preferred stock from Moody’s and S&P.
16 / MEHC and PacifiCorp will exclude all costs of the transaction from PacifiCorp’s utility accounts. Within 90 days following completion of the transaction, MEHC will provide a preliminary accounting of these costs. Further, MEHC will provide the Commission with a final accounting of these costs within 30 days of the accounting close. / COMPLETE / COMPLETE – effective January 30, 2007.
17 / MEHC and PacifiCorp will provide the Commission with unrestricted access to all written information provided by and to credit rating agencies that pertains to PacifiCorp or MEHC. Berkshire Hathaway and MEHC will also provide the Commission with unrestricted access to all written information provided by and to credit rating agencies that pertains to MEHC’s subsidiaries to the extent such information may potentially impact PacifiCorp. / Ongoing Compliance / Rating agency materials are available upon request. See Utah-specific Commitment U10.
18 / PacifiCorp will not make any distribution to PPW Holdings LLC or MEHC that will reduce PacifiCorp’s common equity capital below 40 percent of its total capital without Commission approval. PacifiCorp will notify the Commission if for any reason its common equity capital is reduced to below 44 percent of its total capital for a period longer than three consecutive months. PacifiCorp’s total capital is defined as common equity, preferred equity and long-term debt. Long-term debt is defined as debt with a term of one year or more. The Commission and PacifiCorp may reexamine these minimum common equity percentages as financial conditions or accounting standards change, and PacifiCorp may request adjustments. / Ongoing Compliance / No distributions have been made by PacifiCorp to PPW Holdings LLC or MEHC.
19 / The capital requirements of PacifiCorp, as determined to be necessary to meet its obligation to serve the public, will be given a high priority by the Board of Directors of MEHC and PacifiCorp. / Ongoing Compliance / For the period April 2008 through March 2009, MEHC made equity infusions totaling $450 million.
20 / Neither PacifiCorp nor its subsidiaries will, without the approval of the Commission, make loans or transfer funds (other than dividends and payments pursuant to the Intercompany Administrative Services Agreement) to MEHC or its affiliates, or assume any obligation or liability as guarantor, endorser, surety or otherwise for MEHC or its affiliates; provided that this condition will not prevent PacifiCorp from assuming any obligation or liability on behalf of a subsidiary of PacifiCorp. MEHC will not pledge any of the assets of the business of PacifiCorp as backing for any securities which MEHC or its affiliates (but excluding PacifiCorp and its subsidiaries) may issue. / Ongoing Compliance / Agreed per signed stipulation.
21 / MEHC and PacifiCorp, in future Commission proceedings, will not seek a higher cost of capital than that which PacifiCorp would have sought if the transaction had not occurred. Specifically, no capital financing costs should increase by virtue of the fact that PacifiCorp was acquired by MEHC. / Ongoing Compliance / PacifiCorp continues to calculate its cost of capital on a stand-alone basis, and has not advocated for a higher cost due to its acquisition by MEHC. This has been demonstrated in the cost of capital testimony filed in the company’s general rate case filings.
22 / MEHC and PacifiCorp guarantee that the customers of PacifiCorp will be held harmless if the transaction between MEHC and PacifiCorp results in a higher revenue requirement for PacifiCorp than if the transaction had not occurred; provided, however, that MEHC and PacifiCorp do not intend that this commitment be interpreted to prevent PacifiCorp from recovering prudently incurred costs approved for inclusion in revenue requirement by the Commission. / Ongoing Compliance / The revenue requirement for Utah customers is not higher than the revenue requirement would have been had the transaction not occurred. Regular filings have occurred where results have been reported to regulators and rates reviewed and reset as allowed by the commission in line with the commitment.
23 / PacifiCorp will continue a Blue Sky tariff offering in all states. PacifiCorp will continue to support this offering through innovative marketing, by modifying the tariff to reflect the developing green power market and by monitoring national certification standards. / Ongoing Compliance / Blue Sky promotional activities included targeted direct mail campaigns, email campaign, business reply envelopes , the company's call center challenge, bill messages as well as customer newslettersstories, community project funding announcements and direct customer outreach via customerand community managers and outreach partner.In addition,community-based challenges were launched in partnership with community and business leaders. Community members were alsoafforded the opportunity to learn more about the Blue Sky option viacommunityevents andgreening community events. All customers continue to receive acknowledgement when they enroll including a thank you letter and a window decal. New business partnersreceiveda framed certificate or plaque depending on enrollment level as well as opportunityto promotetheir sustainable actions through the use of theBlue Sky business partner label and new Blue Sky wordmark.Participating customers at the end of the calendar year also received a thank you letter acknowledging the amount of renewable energy they individually supporting during the year and how much collectively all Blue Sky customers supported.